Netflix Plans ‘Substantial’ European Expansion in 2014

Internet subscription-video leader nets 2.3 million U.S. and 1.7 million international streaming members in Q4

Thomas James

Bienvenue and willkommen, Netflix? The Internet streaming leader is gearing up to take Europe by storm, with possible launches in France and Germany this year, as Netflix announced plans to greatly boost its presence on the continent.

“We plan later this year to embark on a substantial European expansion,” Netflix CEO Reed Hastings and CFO David Wells wrote in an letter to shareholders announced fourth-quarter results. “Our success this year in international net additions and shrinking contribution losses confirms our belief that there is a big international opportunity for Netflix.”

Netflix added 2.33 million streaming subscribers in the U.S. during the fourth quarter of 2013 — beating analyst expectations of 2.05 million net adds — to reach 33.4 million total. Overseas, the company added 1.7 million to stand at 10.9 million internationally. For Q4, Netflix reported revenue of $1.18 billion, up 15% year over year, and net income of $48 million versus $8 million a year ago, topping Wall Street expectations on both fronts.

Netflix stock surged 17% in after-hours trading Wednesday, to $393 per share.

SEE ALSO: Why Netflix Would Face Resistance Breaking Into France

For the first quarter of 2014, Netflix expects the momentum to continue, forecasting 2.25 million net new subscribers in the U.S. and 1.6 million internationally. That would bring Netflix from 44.35 million worldwide streaming subs as of the end of 2013, to 48.2 million by the end of March 2014.

Netflix is currently launched in seven European countries — Ireland, the U.K., The Netherlands, Norway, Sweden, Denmark and Finland — and in 41 countries outside the U.S. overall. Analysts have speculated Netflix is eyeing a foray into Germany. In addition, the company has been interested in entering France for years but is concerned about regulations, including obligations to invest in French content, higher value-added taxes and a 36-month release window for subscription VOD services; Netflix execs reportedly met recently with French officials to discuss the issues.

On a Google Hangouts session with select industry analysts following the earnings announcement, Hastings didn’t divulge much further about which countries were up his sleeve, but facing entrenched competition isn’t much of a concern. “There can be very strong players,” he said, citing the example of BBC’s iPlayer in the United Kingdom, “and still build a very successful business. We can succeed in many places and in many cases, the competitors can also.”

Internationally, Netflix remains in growth mode — and its non-U.S. operations are unprofitable, although losses are narrowing.

For its international segment in Q4, Netflix reported $221 million in revenue, up 119% from $101 million in Q4 2012, and a loss of $57 million for the international segment (versus loss $105 million a year earlier). In Q1, Netflix expects that progress to continue, forecasting revenue of $267 million and a contribution loss of $42 million.

In Europe, South America and other territories, “we’ve seen increases in consumer brand awareness and likelihood to recommend across markets as our content offering builds and marketing messages are honed, factors that help drive the y/y growth in net additions,” Hastings and Wells wrote in their letter.

Meanwhile, European pay-TV operators have been more receptive to Netflix’s partnership overtures than cable companies in the States. In the fourth quarter, the company completed the rollout of the Netflix streaming application into Virgin Media’s set-top box for U.K. members and similar deployments with Denmark’s Waoo! and Sweden’s ComHem. Netflix expects to roll out its first U.S. pay-TV integrations “soon with some of the smaller MVPDs,” or multichannel video programming distributors, Hastings and Wells wrote.

“It’s been a really great reception,” Hastings told analysts on the post-earnings call about the set-top deployments to date.  “We’re talking to lots of people throughout the world.”

In the U.S., analysts had expected Netflix to add 2.05 million streaming subscribers during the period, according to a Bloomberg average of 10 estimates. According to Netflix’s Q4 guidance issued last October, the company anticipated adding between 1.6 million and 2.4 million U.S. streaming subscribers and 900,000 to 1.7 million internationally.

At the end of Q3 2013, the company had 31.09 million U.S. streaming subscribers, 9.19 million international subs and 7.15 million DVD-by-mail customers.

Citing international expansion and content costs, Netflix also disclosed plans to raise $400 million in long-term debt on top of the $500 million announced last year.